FRC Thematic Review – viability and going concern disclosures

07 January 2022

The FRC’s viability and going concern thematic review of September 2021 summarises its key findings following the review of a selection of annual reports and accounts which had year ends between December 2020 and March 2021. This review sets out examples of best practice and recommendations of how preparers of annual accounts could improve their viability and going concern disclosures in the future. 

Key observations

The report highlighted that the more helpful viability and going concern disclosures:

  • Included sufficient qualitative and quantitative information to enable a reader to fully understand the assessment. These disclosures may, for example, include details of drawn and undrawn facilities in place and reliance upon such facilities; explanation of any reliance on any government support programs; details of covenants including headroom; and information on post balance sheet changes to liquidity.
  • Were based on assumptions that are clearly consistent with those used in other forward-looking areas of the financial statements such as impairment testing and the assessment of the recoverability of deferred tax assets.
  • Clearly explained the inputs and assumptions used in forecast scenarios (providing quantitative as well as qualitative information).
  • Explained the sensitivity analysis, stress, and reverse stress tests carried out to support the assessment and provide details of the inputs (quantitative as well as qualitative detail) and outcomes of any such analysis.

Expectations for future reporting

The FRC expects viability statements to:

  • clearly justify the period of assessment and provide longer-term information where possible, which investors find more helpful; and
  • draw attention to any assumptions or qualifications on which the assessment is dependent.

The FRC expects going concern disclosures to:

  • clearly identify any material uncertainties related to events or conditions which may cast significant doubt on an entity’s ability to continue as a going concern; and
  • highlight the significant judgements made by management in determining whether or not the adoption of the going concern basis is appropriate and whether or not there are material uncertainties in respect of going concern to disclose.

What next?

Companies are encouraged to consider the findings within this thematic review when drafting their upcoming annual reports.

If you require any further information or assistance on viability and going concern disclosures, please contact Helen Jones or your usual RSM contact.